“The demand for goods is there; there is just not enough liquidity to move those goods around.”

The words of Stamatis Molaris, CEO of Excel Maritime in a Reuters interview on Friday have an eerie ring to them—eerie in the sense that we may be hearing a lot more of them from executives up and down the supply chain. Speaking on a day when the Baltic Dry Index plunged to a two-year low, Molaris said tight credit conditions would slow orders for materials that require massive ships as well as the ability to build those ships.

“If the credit crunch lasts beyond the short term, then shipyards—especially the newer ones—are going to fall like a house of cards,” he told Reuters, adding that even Excel with its strong balance sheet may find it hard to raise funds for new acquisitions in the current environment. "Get me funding and I'll look at a ship. I cannot stress this enough: The banks are not lending any money."

The Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, fell 417 points Friday to close at 3,746 and by the end of the day Monday it was down to 3,504.

Similarly, Norden CEO Carsten Mortensen also blamed the credit crunch for the freight rate plunge. He told Lloyd’s List that “A very dramatic two months in the banking sector have pushed down rates and sentiment much more than most market participants had expected. Does that change our fundamental belief in the demand for dry cargo bulk transportation going forward? Not really.”

Even the Wall Street Journal referred to the Baltic Dry Index plunge as “ripple effects of the crisis in the real economy."

But other sources say it’s not just the credit markets at play and there are real changes afoot in demand trends for ocean shipping. Jeffrey Landsberg, a freight options broker at Imarex, told Forbes that reports out of China that it will boycott iron ore from Brazil and use domestic iron ore put dry bulk shipping firms and rates into a panic. Forbes points out that Vale said the news was untrue, but the damage was done to the index notwithstanding.

But Landsberg also agreed that tight credit markets would hinder shipbuilding, citing three separate South Korean shipyards that announced they would likely have to cancel 40 big ships because they aren’t able to raise enough capital to finance construction.

Yet more reason to panic? The Baltic Dry index, which measures dry bulk shipping costs, plunged by nearly a quarter last week - 10 per cent on Friday alone - as rates plummeted for the biggest ocean carriers of raw materials. Shipping groups' shares, notably in Asia, have followed suit. Given the index's reputation as a leading indicator, that looks scary. In fact, the index's predictive value has weakened as it has become far more volatile than the commodities markets underlying it, gyrating around on factors such as shipping supply bottlenecks. It has twice doubled and fallen back within 15 months; its latest slide leaves it 70 per cent below its May peak.

The Baltic Dry once correlated closely with global commodity indices. It started yoyoing in 2002 as China became a vast suction pump for materials such as iron ore and coking coal, straining the global supply chain. And China is driving today's plunge. The expected post-Olympic rebound - as polluting plants shuttered during the Beijing games reopened - has not occurred, with steel producers jittery over demand. They have also suspended buying iron ore from Brazil's Vale in protest over cheeky demands by the world's largest producer for a mid-contract price increase. With China's ore stockpiles overflowing, ships are sailing empty from Brazil. Another pressure on the index may be sell-offs of forward freight agreements, or options contracts on freight rates, as finance houses dump derivatives.

But while its movements may be exaggerated, the Baltic Dry's drop does reflect a weakening of Chinese raw material demand. Meanwhile, Drewry, the London-based shipping consultants, forecasts growth in container ship imports from Asia to Europe will fall from 15 per cent in recent years to 4-5 per cent this year while container imports from Asia to the US will decline 2 per cent. Just as money is no longer rocketing round the financial system, so goods flowing round the world's seaways are slowing too.

NEW YORK - One analyst suggests that the spreading credit crisis and the lifting of some temporary factors will allow drybulk shipping demand to rebound by the end of this year.

Shipping activity slowed significantly, as anticipated, around the Olympics in Beijing. But demand did not rebound this month as was widely expected, Jefferies analyst Douglas Mavrinac said, because of a Chinese boycott of Brazilian iron ore.

Last week, an association representing the largest Chinese iron ore suppliers formalized a boycott against a major Brazilian supplier, as that company announced plans to hike prices to Asian customers by about 11 percent.

Mavrinac said he expects iron ore deliveries from Brazil to China will remain "limited" in the near future,but will need to increase as China runs of its own supplies of the commodity, used to make steel.

But possibly by as early as November, Mavrinac said the boycott should be lifted and drybulk trade - which also includes shipments of grain, coal and cement - should pick up.

The analyst even predicts that the Baltic Dry Index, which measures drybulk shipping rates on 40 routes across the world, might return to record levels it set in May.

The index, managed by the Baltic Exchange in London, closed down 242 points Monday at 3,504. It has declined since hitting an all-time high on May 20 of 11,793.

And Mavrinac said that shipping demand and the potential jump in drybulk stocks will likely grow even stronger as the credit crisis spreads. The analyst notes that shaky financial markets are making it difficult for shipowners to finance the building of new ships, so the 2010-influx that was expected will likely be limited, keeping demand high.

Most drybulk stocks sank by double-digit percentages and set fresh year-lows Monday, as the U.S. House of Representatives failed to pass the $700 emergency bailout package designed to ease quickly spreading financial woes.

The House on Monday voted down the Bush administration's historic $700 billion financial rescue plan, triggering one of the worst days for stocks and dealing a sharp blow to bipartisan efforts, despite repeated warnings about the U.S. teetering on the brink of an economic precipice.

Officials are trying to figure out what the next step will be for rescue-related legislation, and an aide in the House speaker's office said lawmakers are ready to work in a bipartisan way. U.S. stocks plunged when the vote results became clear, and the Dow Jones Industrial Average ended down 777 points, or 7%, to 10,365.

Finger pointing followed soon after the vote. Republican leaders accused House Speaker Nancy Pelosi of driving away some GOP votes with a partisan floor speech. Rep. Barney Frank, chairman of the financial services committee, said Republicans may be "covering up the embarrassment" of not having the votes.

"And because somebody hurt their feelings they decide to punish the country," Frank said. "I mean, I would not have imputed that degree of pettiness and hypersensitivity."

Pelosi said bipartisan needs to move legislation forward: "The crisis has not gone away."

Some House members balked at giving the Treasury immense power -- the ability to buy up hundreds of billions of bad debt. And there were ongoing complaints over insufficient accountability, transparency and large-scale government intervention. But Paulson, along with Federal Reserve Chairman Ben Bernanke, has been intent over the past week on broadcasting warnings about dire consequences if the plan was even delayed.

With elections approaching, lawmakers, both Democrats and Republicans, are under intense scrutiny, and nervous about voting for a plan that risks so much taxpayer money without any definitive promise of success. In the end, there were 205 in favor of the legislation and 228 against. Among Democrats, 140 voted in favor and 95 against. Among Republicans, 65 voted in favor and 133 against.

Critics also say the plan inadequately addressed job losses and a distressed housing market --problems that underlie current economic weakness. Meanwhile, those in favor of the plan were looking to treat a manageable symptom -- the frozen credit market -- if not the actual disease.

A vote in the Senate was expected Wednesday, and the president would have followed with a speedy signature.

From the data I pulled from Yahoo Finance, which only goes back to 1928, today was the 17th worst day since 1928.. It was the fourth worst in modern times — which is probably a better measure given how different the world is now. Given all the circuit breakers put in post the 1987 and 1989 “market breaks” it would be real difficult (if not impossible) to get another 22% down day. Here’s the modern top five worst Dow days:

WASHINGTON — As Europe and Asia play down the need for an American-style bailout for their banks, the crisis may threaten a different class of countries: those in Eastern Europe, Latin America and Africa that depend on foreign capital and shoulder American-style trade deficits.

Alarmed by the threat, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, is calling for a multilateral consultation — involving the United States, Europe, China and other financial powers — to develop a coordinated response to the crisis.

“We’re facing a systemic crisis, and it needs a systemic response,” Mr. Strauss-Kahn said in an interview on Wednesday. “The I.M.F. is the right place to organize a global response to weaknesses in the global financial system.”

His initiative is an attempt to thrust the fund back into the thick of world events — a role it played in previous financial crises in Asia, Russia and Latin America, but has not played in the current turmoil.

Whether or not he succeeds, economists agree that Mr. Strauss-Kahn, a former French finance minister, has identified a risk. The crisis, by squeezing the flow of capital, threatens countries from the Baltic to Africa that depend on foreign money to finance their deficits.

“There are a number of countries where you can get quite worried if capital flows stop,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “When you look at their high current-account deficits, Central and Eastern Europe seem particularly vulnerable.”

A second category of countries are those who export oil or other commodities, and are vulnerable to a decline in prices — something that economists said would happen if the crisis hobbled growth. Oil plunged last week as Wall Street teetered, but it bounced back as hope rose for a bailout.

“If the world economy does experience something like a global recession next year, those countries will be at risk,” said Michael Mussa, a senior fellow at the Peterson Institute for International Economics.

There are more than 20 countries with current-account deficits that exceed 5 percent of their economic output, Mr. Strauss-Kahn said, putting them in what the fund considers the endangered category.

Mr. Strauss-Kahn declined to name names, but outside economists listed Bulgaria, Estonia, Romania and Turkey as among the red flags in Europe. In Africa, they said, South Africa and Nigeria were worrisome; and in Latin America, Venezuela and Ecuador.

The list, Mr. Strauss-Kahn said, does not include the four largest emerging-market countries — China, Russia, Brazil and India — which are running healthy trade surpluses or have hundreds of billions in foreign exchange reserves, though Russia is vulnerable to a drop in oil prices.

Western Europe, economists say, is unlikely to be seriously affected, despite having banks that hold mortgage-related assets. This has made European officials reluctant to heed the Treasury Department’s call for them to undertake their own efforts to bolster the financial system.

Treasury Secretary Henry M. Paulson Jr. has resisted efforts by Congress to make foreign banks ineligible for the plan. But administration officials said they planned to set priorities on which ones to help, based on whether their governments were willing to help with the cleanup process.

Two of the most threatened countries lie on Europe’s eastern frontier: Bulgaria and Romania, which have racked up high current account deficits and are running overheated economies.

“These countries have been growing too fast or borrowing too much,” said Peter Akos Bod, a former president of the Hungarian central bank. “Should there be a sudden stop in capital, they would be in deep trouble.”

Latin America is a perennial source of worry, given its history of troubled fiscal policy. For the moment, several countries, notably Venezuela, are benefiting from the soaring price of oil.

But if oil and other commodities were to decline, said John Williamson, a senior fellow at the Peterson Institute who specializes in the region, “South America would be less comfortably placed.”

Mr. Strauss-Kahn said he recognized that the monetary fund would be largely a bystander in this crisis, given that the problems began in the United States and remain largely a domestic banking issue.

But he said the fund could play a role in giving advice. Among its suggestions: rather than buy distressed mortgage-related securities from banks, the Treasury should swap them for bonds, which Mr. Strauss-Kahn said would be cheaper and leave some of the risk with the banks.

Mr. Strauss-Kahn said he also planned to confront one of the most politically charged issues at the fund: strengthening its pressure on China to allow its currency, the renminbi, to rise.

Critics in the Bush administration and Congress say the fund has not pushed China hard enough on its currency. Mr. Strauss-Kahn acknowledged the difficulty of being tougher, given the politics of the fund.

The fund’s last multilateral consultation, to discuss global imbalances, was held in 2006. It included China, Japan, the European Union, Saudi Arabia, and the United States. Mr. Strauss-Kahn did not say which countries would be invited to take part this time, though other officials said it would probably include those countries and emerging markets like Brazil and Russia.

The Index had yet another horror story last Friday plunging another 10% pr 417 points.

Index is now at 3746!

And with such a plunge, shipping stocks across Asia fell too!

Sept. 29 (Bloomberg) -- Mitsui O.S.K. Lines Ltd., Japan's largest operator of iron-ore ships, dropped in Tokyo trading along with domestic rivals, as rates for carrying commodities had their biggest slump on record.

The shipping line declined as much as 4.8 percent to 901 yen and traded at 909 yen as of 9:17 a.m. in Tokyo. Nippon Yusen K.K., Japan's biggest shipping line by sales, dropped as much as 3.8 percent and Kawasaki Kisen Kaisha Ltd., the third-largest, slid as much as 4.8 percent.

The Baltic Dry Index, a measure of commodity-shipping rates, dropped 10 percent on Sept. 26, as Chinese steelmakers stopped buying iron-ore from Brazil's Cia. Vale do Rio Doce as part of a pricing standoff. The index has tumbled 80 percent since a peak in June.

``There's no strength left to even muster a rebound,'' said Yoshihisa Miyamoto, an analyst in Tokyo at Okasan Securities Co. ``This week shipping lines are set for a punch that will put to rest anyone left that wants to buy.''

Chinese steelmakers, the world's biggest iron-ore consumers, won't buy from Vale in the ``short term,'' the China Iron and Steel Association said Sept. 26. Vale wants to raise prices for Asian mills to match what European clients are paying. The association says that's ``unreasonable'' because of slowing steel demand from automakers and builders.

Some noteworthy points.

1. Index has plunged 80% since its peak in June!!!

2. Slowing steel demands!

And yes many are seeing their investments plunged due to their investments in shipping stocks.

Makes one wonder.

Is investing to be blamed or should one be realistic enough to understand that perhaps they did not understand the nature of business or the business economics of the business they had invested in?

And of course, some are still holding on to their investments, refusing to accept what has happened. Some call it being in denial mode. I wonder if they realise that there is a probability that perhaps this shipping index would never reach anyway near its peak again. A probability but on the other hand, who am I to say, it would never?

Friday, September 26, 2008

Speaking at the CLSA conference in Hong Kong, bearish Dr Marc Faber refrains from saying ‘I told you so’, and remains pessimistic about the global outlook for markets and economies.

“The severity of a downturn is proportional to the excesses that preceded it,” began Marc Faber, leading off his speech to the CLSA conference in Hong Kong.

He then pointed out those excesses, with the chief culprit in his opinion being the mistake of leaving the US federal funds rate at 1% until June 2004, three years after the US economic expansion began. That has led to a mis-pricing of capital and overly strong debt growth with a consequent diminishing of asset quality in financial institutions. Today, US debt-to-GDP levels are higher than they were in the days preceding the Wall Street crash of 1929.

Even though one solution would be to adopt tighter monetary conditions, Faber believes that such a move would be contrary to the US government philosophy that overlooks asset bubbles – and when these asset bubbles deflate, they flood the market with liquidity. “Central bankers have become hostages to inflated asset markets,” he points out. He notes that virtually every asset class from commodities to collectables has witnessed a price boom in recent years.

In turn those bubbles are now popping. It started with property, then subprime, then financial institutions. Next to go will be equities as problems hit the wider economy, first in America, and then, given that market decoupling has not occurred, worldwide. “Sell those left standing,” he recommends, “while their valuations are still in the sky.”

While Faber sees some potential for short-term strength for the US dollar, ultimately he feels the dollar is a worthless currency, and the only way that the US indices can return to previous highs is by the dollar being diluted by inflation.

“The financial sector will never again see the conditions of the last 25 years, and the S&P index won’t make a new high in real terms for the next 20 years, “ he observes. “Indexing is dead and you can only make money on stocks with a trading mentality and by stock selection.”

Faber is not a fan of the US bailout package, and suspects that the US government is overzealous in its interventions, with Hank Paulson coincidentally synchronising his interventions to time with falls in the Goldman Sachs stock price. “If the government buys everything, then hedge funds can simply arbitrage by buying all the rubbish and selling it to the Fed.”

After his speech was concluded he said that the US cannot stomach asset prices falling to their natural level and a better use of the American bailout package would be to take over the banks and recapitalise them, or to use the money to buy up the surfeit of American homes; if people didn’t want to sell them for fear of reducing home prices, simply demolish them.

Furthermore, although he acknowledges the possibility that the US bailout might serve to prevent US property prices falling much further, he thinks that this stability would be married with no real prospect for price increases and therefore long-term price stagnation in real terms.

His investment solutions remain unchanged from his customary message, namely: farmland and commodities. On the equities side, he sees potential for Japan to outperform, with Japanese financial institutions looking interesting.

$700 billion may not be enough to bail out Wall Street says one analyst, given the lack of transparency and the length and breadth of financial markets involved.

Marc Faber, editor & publisher of 'The Gloom, Boom & Doom Report', told CNBC's Asia Squawk Box on Friday, he doubts that $700 billion would make any difference when you consider the size of U.S. credit markets.

"Looking at the size of the credit market in the United States, the equities market, the housing market and then looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all. In fact, I think it's a bad proposal in the sense that it will distort market pricing," Faber said.

Faber says that the fundamental problem is not falling home prices as U.S. Treasury Secretary Henry Paulson suggests.

"The problem is that too much money was lent against homes at inflated asset values. In other words that means at the peak of the market, people went and lent them 120 percent against the value of the home. And that is the problem -- the leverage in the system," Faber said.

He added that the current bailout plan proposed by the Treasury and the U.S. Federal Reserve does not address this leverage problem in the markets.

"My friend suggested what would be much cheaper -- go in and buy a million homes in the United States and burn them down. Because that will reduce the supply. Of course it is an economic nonsense solution, but it is as good as the Treasury's proposal," Faber quipped.

There's this comment on FinancialSense market wrap today.

Housing, jobs, and durable goods were all disasters. Expect to see production cutbacks and rising unemployment. Anyone who thinks the US is not in recession is in absolute fantasyland. - Mike 'Mish' Shedlock ( see Horrid Data: Housing, Jobs, Durable Goods )

BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?

WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.

And this was rather interesting in my opinion.

BECKY: Does the backdrop of the Federal government potentially getting involved with a massive bailout plan for Wall Street, does that have anything to do with this deal?

BUFFETT:Well, I would say this. If I didn't think the government was going to act, I would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.

WOW! Firstly this is a huge endorsement on what Paulson wants to do. Secondly, Buffett is clearly stating how critical things are at this moment of time.

BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?

BUFFETT: Well, there's just no telling what would happen. Last week we were at the brink of something that would have made anything that's happened in financial history lookpale.We were very, very close to a system that was totally dysfunctional and would have not only gummed up the financial markets, but gummed up the economy in a way that would take us years and years to repair. We've got enough problems to deal with anyway. I'm not saying the Paulson plan eliminates those problems. But it was absolutely, and is absolutely necessary, in my view, to really avoid going over the precipice.

Buffett then continues..

BUFFETT: Yeah, well, both the economy and the financial markets, but there're so intertwined that what happens, they're joined at the hip. And it doesn't pay to get into horror stories in terms of naming institutions or anything. But I will tell you that the market could not have, in my view, could not have taken another week like what was developing last week.And setting forth the Paulson plan, it was the last thing, I think, that Hank Paulson wanted to do. there's no Plan B for this.

Ahem! We were that close.... !!!

BECKY: Warren, you mentioned that Wall Street could not have taken another week like that. But what does that mean to the American taxpayer who's sitting at home saying, 'Why is this my problem?'

BUFFETT: Yeah, well, it's everybody's problem. Unfortunately, the economy is a little like a bathtub. You can't have cold water in the front and hot water in the back. And what was happening on Wall Street was going to immerse that bathtub very, very quickly in terms of business. Look, right now business is having trouble throughout the economy. But a collapse of the kind of institutions that were threatened last week, and their inability to fund, would have caused industry and retail and everything else to grind to something close to a halt.It was, and still is, a very, very dangerous situation. No plan is going to be perfect, but thanks heavens that Paulson had the imagination to step up with something that is of the scope that can really do something about it.And what he did with the money market funds, that was not an idea that I had, but as soon as I heard about it, that was an important stroke. Because the money, pulling out of the money market funds and going to Treasuries, and driving Treasury yields down to zero. That -- a few more days of that and people would have been reading about lots and lots of troubles.

JOE: But when the more dire it looked, in terms of communicating, with some of these Senators, the three-month or one-month bill, again, started acting similar to what was happening on Thursday. Now we averted that disaster on Thursday, but it's already been three or four days. It's almost as if these guys already forgot about the position that we were in. Do you think that accounted -- we're still susceptible to that happening again if it looked like they're not going to go through with this?

BUFFETT: No, it would get worse. Last week will look like Nirvana (laughs) if they don't do something. I think they will. I understand where they're very mad about what's happened in the past, but this isn't the time to vent your spleen about that. This is the time to do something that gets this country back on the right track. What you have, Joe, you have all the major institutions in the world trying to deleverage. And we want them to deleverage, but they're trying to deleverage at the same time.Well, if huge institutions are trying to deleverage, you need someone in the world that's willing to leverage up. And there's no one that can leverage up except the United States government. And what they're talking about is leveraging up to the tune of 700 billion, to in effect, offset the deleveraging that's going on through all the financial institutions. And I might add, if they do it right, and I think they will do it reasonably right, they won't do it perfectly right, I think they'll make a lot of money. Because if they don't -- they shouldn't buy these debt instruments at what the institutions paid. They shouldn't buy them at what they're carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually.

KUALA LUMPUR: Sapura Resources Bhd’s net loss for the second quarter (2Q) ended July 31, 2008 narrowed to RM753,000 from to RM1.73 million a year earlier due to more vehicles sold and a rise in the number of students in its education business.

Revenue rose 8.4% to RM60 million from RM55.36 million a year earlier. No dividend was declared.

For the six months to July 31, its net loss narrowed to RM2.07 million from RM4.94 million a year earlier, while revenue rose 37% to RM124.99 million from RM91.26 million.

Hedge funds could have an unprecedented level of cash pulled out by investors this quarter, according to insiders, just as they faced millions of pounds of losses from last week's shock regulation of short selling. It has been a tough year for the industry with high-profile funds blowing up, clients increasing redemptions, as well as public fury over short selling and increased threats of regulation.

One hedge fund expert pointed to The Hedge Fund Implode-O-Meter (HFI) as how he judges the state of the industry. The HFI was set up online in the wake of the credit crunch "to track as hedge funds learn the double-edged-sword nature of the often extreme leverage they use".

The group's "imploded funds" list has hit 51 companies since the sub-prime mortgage crisis in the United States kicked off a widespread downturn. That compares with its historical list, stretching back more than a decade to the end of 2006, of just 14, including the collapse of Long-Term Capital Management and Amaranth.

This year, big names including Peloton Capital Partners, Carlyle Capital Corporation and Dillon Read Capital Management are just some of the half century to collapse. "We think hedge funds have largely lost their way," HFI said. "Notably, most have abandoned capital-preservation for the goal of aggressive accumulation of capital gains, with the benefit of lax regulation and extreme leverage available to exploit."

It has 34 stocks on its "ailing/watch list" of those that have suffered significant value declines or temporarily halted redemptions. According to EuroHedge, a hedge fund data provider, 272 individual funds strategies were launched during the first six months of 2008, the lowest for nine years.In the same time, 243 funds have been liquidated, the highest in a six-month period.

Nouriel Roubini, the New York University economics professor, says worse is to come. He believes there will be an increase in client withdrawals and a shake-up of how funds are regulated.

The redemptions seem to have started in earnest, although currently the evidence is mainly anecdotal. One UK hedge fund manager confided that last week had the highest number of investors rushing to withdraw funds that he has known. The industry will know for sure whether it is a drip or a deluge when the data providers release their statistics for the third quarter, next month. One market analyst said: "I know even the good hedge funds have been suffering withdrawals recently. Investors are very nervous."

Performance numbers are also under pressure. Some have done well out of the market disturbance, but on average the performance numbers are at a low ebb. Andrew Baker, the deputy head of Aima, the hedge fund trade body, said: "The performance is undoubtedly soggy. There are not many strategies that stand out."

EuroHedge revealed that strategies that have done particularly badly this year include several run by Naissance Capital, once bankrolled by the Habsburg families, which are down a fifth and Pico Fund, which is down 32 per cent. At Endeavour Fund, set up by former Salomon Smith Barney traders, the second fund has fallen by 40 per cent, while its third fund is down 38.79 per cent in 2008. In the emerging markets, PharmaInvest Fund's investments in emerging markets are 38.16 per cent down.

Other funds have sought to lock in investors by halting redemptions. The latest example was RAB, with its flagship Special Situations Fund, as it was so desperate to prevent exits after a 22 per cent drop in performance that it offered vastly reduced fees in return for a lock-in period of three years.

One of the main problems experienced by hedge funds is the extent of leverage in the industry. The funds were able to take on huge amounts of debt, with little capital needed as security, to boost returns. One observer said some of the leveraged strategies were like "picking up pennies in front of a steamroller, and that only takes a turn in the market to cause severe problems".

Andrew Lodge, the managing director of fund of hedge funds Nedbank Investments, said: "Some funds have gone in for huge leverage-driven strategies, which can be a problem. The appetite for leverage is less." He added that some could be affected by increased margin calls, and could face issues over their covenants.

At the same time, hedge funds, like the banks, have had to write down exposures to investments in risky instruments including collateralised debt obligations and asset backed securities, and also been exposed to the huge swings in the market.

Another issue is the regulators sniffing around. There have been wider calls for transparency and official controls of the industry, which has already been stung by the shock short-selling rules.

Mr Lodge said: "It's a myth to say hedge funds aren't regulated. There is a perception that they are running wild with no oversight, which isn't true. We would welcome some regulation, just as long as it doesn't strangle the industry."

On Friday, the FSA banned short selling in financial stocks, and forced hedge funds to disclose their positions. As the underlying shares rose as a result, the industry was looking at well over £1bn in paper losses on the day.

Stuart McLaren, financial services partner at Deloitte, said: "When the dust has settled, I expect the regulators to look at the role that hedge funds have played in the current issues. I expect there will be increased calls for regulation, but I doubt much will come from it."

Mr Baker said: "Some hedge funds are doing well. However, the number of professionals feeling good about life will be dwindling. The health indicators are generally negative, while costs are up and performance is down. Many are feeling battered and bruised and feeling worried about the future."

Goldman (GS, Fortune 500) will sell $5 billion of preferred stock to the insurance and investment giant, which will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, the company announced Tuesday. Berkshire (BRKA, Fortune 500) has five years to exercise the warrants.

And here is what Warren has to say.

"Goldman Sachs is an exceptional institution," said Buffett in a statement. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."

Shares of Goldman soared over 11 percent in after-hours trading following the announcement. US stock futures also jumped on the news.

This is a marriage of two incredibly intelligent, attractive partners," said Michael Holland, a money manager at Holland in New York. "Buffett is saying about the top management of Goldman Sachs that they're distinct and different from their competitors—and it's a vote of confidence which is gold plated. You don't get better than this."

In a surprise return to Wall Street, Warren Buffett's Berkshire Hathaway has a deal to invest at least $5 billion in Goldman Sachs.

Up until now, he has rejected all pleas to come to Wall Street's aid during the current crisis.

Goldman revealed the vote of confidence from the man generally considered the world's greatest investor late this afternoon in a news release.

Berkshire will buy $5 in preferred Goldman stock with a dividend of 10 percent. It will also get warrants to buy another $5 in common stock over five years.

Buffett has avoided Wall Street since he came to Salomon Brothers' aid as a hands-on manager when it was hit by a trading scandal in 1991. He had bought a $700 million stake in the company four years before.

He eventually turned a profit on the investment, but it was a long and difficult experience for him, making tonight's news especially unexpected.

In a brief off-camera telephone conversation tonight, Buffett told CNBC's Becky Quick he loves the terms of the deal and he loves Goldman. (It's important to note that Buffett got a much better deal than any individual investor could hope for.)

Even so, Becky tells me she's "stunned" by this development, and I am too. Neither of us can believe it just now.

Becky jokes she would have predicted that Buffett would buy a stake in Pepsi, arch-rival of his beloved Coca-Cola, before he put money into a Wall Street firm again.

She expects to speak extensively with Buffett live on the air tomorrow (Wednesday) morning just after 8a ET on Squawk Box. They'll cover the Goldman investment as well as everything else that's happening in the financial world right now, including his support of the administration's increasingly controversial bailout plan.

While Buffett came to New York to help run Salomon years ago, its inconceivable that he would leave Omaha this time around to pitch in at Goldman's executive suite.

Buffett is quoted in the release with some very positive comments about Goldman, which recently converted from an investment bank to a bank holding company.

"Goldman Sachs is an exceptional institution. It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance.”

Goldman CEO Lloyd Blankfein returns the favor in his quote. "We are pleased that given our longstanding relationship, Warren Buffett, arguably the world’s most admired and successful investor, has decided to make such a significant investment in Goldman Sachs. We view it as a strong validation of our client franchise and future prospects. This investment will further bolster our strong capitalization and liquidity position."

Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 a share. The warrants can be used at any time over a five year period.

In addition, Goldman will raise at least $2.5 billion in common equity through a public offering.

Tuesday, September 23, 2008

"About 15 percent of U.S. households have negative equity. Who supplied the leverage into the system? It's called the Federal Reserve Board," Faber said.

"If I'm the drug dealer I'm not responsible that everybody takes drugs, but I facilitate it, especially if I give it out free of charge, I can enlarge the market share, and that's what the Fed has done."

Liquidity will dry up even more, volatility will stay high and financial assets are going to suffer as the crisis continues to unfold. The bailout plan is unlikely to work and the global economy will take the hit, he predicted.

"People rely on the people in Congress, at the Fed, at the Treasury, people that brought us into this trouble, to take us out of trouble. I don't think they will succeed," Faber said. "We can have recovery rallies but a new high on the S&P is practically out of the question for a very long time. In real terms, equities are still very high and economically, I think the world will go into a slump."

The main provider of global liquidity was the U.S. current account deficit, which increased at a fast pace over the past 10 years, but this will no longer be the case.

"Next year, if the economy in the U.S. is as weak as I think it would be, the trade and the current account deficit will continue to contract," Faber said. "When global liquidity contracts, it's not a good time for financial assets."

Other sources of funding, such as foreign reserves of resources-rich countries, are also likely to dry up, Faber said. "I think sovereign wealth funds are going to be very busy supporting their own markets, they won't have much money to buy assets around the world."

And he feels that the short selling ban is sooooooooooo stupid!

Volatility comes from the fact that, as the private sector tightens lending conditions to adjust its risk management, central banks are injecting liquidity in the money markets to grease the system, he said, adding that banning short-selling will not contribute to reducing volatility and was a "stupid measure."

"Short sellers are not responsible for current problems. The current problems are caused by the US Fed (Federal Reserve), that was sitting there and letting credit growth go out of bounds," Faber said.

"We have to see very clearly that the cause of the problem was excess leverage. The biggest hedge funds were Fannie Mae and Freddie Mac, they had the leverage of one over 150 and under the eyes of Congress, under the eyes of the SEC and everybody… and nobody did anything about it. Then, people go and bitch about the short sellers," he added.

The fact that the rules on short-selling are changing nearly daily, with new names added to the list of securities in which short-selling is banned or with specific rules regarding hedging and confidentiality contributes to adding uncertainty, he said.

The despair of Wall Street, redux. Volatility with no volume. That's what we got today. The Dow swung in a 400 POINT RANGE, but volume was about half what it was at the end of last week.

Why? Some said too much uncertainty over the Treasury bill, some said with no short sellers adding liquidity, what do you expect? Others said the reflation trade has added another level of confusion.

The markets may have acted negatively over concern about all the strings Democrats are attaching to the Treasury Department rescue plan, but don't kid yourself: a deal will get done.

Still, don't underestimate what this bill is doing to the psychology on the Street. Most stock traders would be willing to accept more help for homeowners facing foreclosure as part of the bill.

What's left? Some Dems want a stake (warrants) in any company that sells assets to the program. That's a problem. We're selling you the assets, below market price probably, and you still want warrants?

Also an issue: drastically limiting pay for executives. We are probably not just talking about CEOs. We're probably talking about anyone in management. And--as we all know--commercial bank management makes A LOT less than investment bank management. ( my comments: yes about time, yes? Those buggers were paid insanely. It's totally obscene that anyone could be paid so much! )

Bottom line: less business, less pay, less reward. That's what Wall Street management is facing today.

On today's FinancialSense market wrap commentary, market commentator Rob Kirby wrote a highly interesting piece called, And the Band Played On

The following passages were most interesting.

Late last week, I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning.

This bears repeating.

The advance was reportedly “to allow” Lehman to settle securities trades with clients. J.P. Morgan was then immediately reimbursed by the Federal Reserve for the same 138 billion.

What was not originally reported, or likely not understood at the time due to the types of securities that Lehman did most of their business in [Credit Derivatives], it is a virtual certainty that J.P. Morgan [the largest derivatives player in the world with 8.1 Trillion in Credit Derivatives alone] was the “client” [the other side of the Lehman trades that needed to be settled].

The critical piece of information that completes the daisy-chain: The world only learned about J.P. Morgan’s 138 billion advance from a bankruptcy court document, where Lehman was asking the court for the authority to give the settlement of claims of J.P. Morgan “special status.”

Here’s how this flow-of-funds looks visually:

It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase.

This makes sense. Investment banks are dropping like flies, owing to their involvement in credit derivatives – this is a fact.

J. P. Morgan is – HANDS DOWN – the largest derivatives player in the world with a book of 90 Trillion in notional value on March 31, 2008 – with 9% of the book composed of Credit Derivatives. That amounts to a cool 8.1 Trillion worth of Credit Derivatives. We know this from the Office of the Comptroller of the Currency’s Quarterly Derivatives Report – pg. 24.

TM has proposed to privatise VADS at RM7.60 per share, matching our target price for the stock, which values the company at 12x FY09 EPS. We view the takeover as a beneficial exit option for minority shareholders as it addresses the stock’s illiquidity. We believe TM had taken cognisance of this in arriving at the offer price, with due consideration for VADS’ solid balance sheet. Hence, we are of the opinion that the minorities should acquiesce to the offer. Fully valued at RM7.60.

Offer price at our target of RM7.60. TM has proposed to undertake the privatisation of VADS at RM7.60 per share implemented via selective capital repayment. The deal values VADS at 12x FY09 EPS, or a market capitalisation of RM1bn, matching our target price for the stock. The offer, which carries a 12% and 18.4% premium over the stock’s last traded and the 5-day volume weighted average price respectively, has adequately factored in the company’s enviable cash flow/balance sheet and dividend prospects.

Solid fundamentals. VADS has not disappointed given its successive y-o-y growth in revenue and earnings, charting CAGRs of 28.6% and 39.3% respectively since listing in 2002. Its earnings are highly visible, thanks to strong recurring revenue from the managed network services (MNS) segment. The focus on the business process outsourcing (BPO) space unlocks a strong revenue stream and is expected to spearhead earnings growth going forward. We project EPS growth at a healthy 25% on average p.a. going into FY10.

One more bites the dust. We were one of the first to commence coverage on VADS in 2005 and had consistently picked the stock as our top pick in the small cap ICT sector for 3 consecutive years. Its privatisation will undoubtedly remove a jewel whose track record is difficult to emulate. The scarcity value attached to the stock is reflected in the takeover price, which we deem fair. We advise minorities to accept the offer as it is a good exit strategy to unlock the value of a stock that has been plagued by liquidity constraints and is trading at an unwarranted discount to its global BPO peers.

This is where it is sooooooooooooooo wrong.

Acquiesce to the offer?

According to my pal Wikiseng, to acquiesce is to knowingly standing by without raising any objection to infringement of his rights...

So if I am not flawed again, is OSK telling VADS minority shareholders just to accept the offer, in regardless?

Forget about the fact that company has solid fundamentals?

Forget about the fact the stock had managed to register stellar CAGR growth of 28.6% and 39.3% since listing?

Forget about the fact the offer price is priced only at 12x FY09 EPS?

Forget about asking if the offer price is justifiable or not?

Just acquiesce to the offer.

Sad isn't it?

Don't you think you are not fully compensated?

So how?

Better consider what happens here before you invest in any listed subsidiary.

The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.

Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor.

According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds "breaking the buck," or dropping below $1 net asset value.

The Fed's dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

While many depositors treat money market accounts as fancy savings accounts, they are different. Banks buy a variety of short-term debt, including commercial paper, with the assets. It is an important distinction because banks use the $1.7 trillion commercial-paper market to fund their credit card operations and car finance companies use it to move autos.Without commercial paper, "factories would have to shut down, people would lose their jobs and there would be an effect on the real economy," Paul Schott Stevens, of the Investment Company Institute, told the Wall Street Journal.

Cracks started to show in money market accounts late Tuesday when shares in one fund, the Reserve Primary Fund - which touted itself as super safe - fell below the golden $1 a share level. It had purchased what it thought was safe Lehman bonds, never dreaming they could default - which they did 24 hours earlier when the 158-year-old investment bank filed Chapter 11.

By Wednesday, banks sensed a run on their accounts. They started stockpiling cash in anticipation of withdrawals.

Banks, which usually keep an average of $2 billion in excess reserves earmarked for withdrawals, pumped that up to an astounding $90 billion by Wednesday, Lou Crandall, chief economist at Wrighton ICAP, told The Journal.

And for good reason. By the close of business on Wednesday, $144.5 billion - a record - had been withdrawn. How much money was taken out of money market funds the prior week? Roughly $7.1 billion, according to AMG Data Services.

By Thursday, that level, fed by the incredible volume of sell orders pouring in from institutional investors like pension funds and sovereign funds, had grown to $100 billion. It was still not enough to stem the tidal wave.

The banks knew something drastic had to be done. So did Paulson.

The injection of capital into the market was followed up by calls from Treasury Secretary Hank Paulson to major money market players like Bank of New York Mellon and State Street in Boston informing them that federal money was in the market and they should tell their clients the Feds would be back with a plan to stem the constriction in the credit market.

Paulson knew the $105 billion injection was not a real solution. A broader, more radical answer was needed.

Hours after Paulson made his round of calls to calm the industry, word leaked out that an added $1 trillion bailout of banks was being readied. Investors cheered. At about 3 p.m., news of the plans was filtering up and down Wall Street, fueling a 700-point advance in the Dow Jones industrial average through 4 p.m. Friday.

By that time, Paulson had announced the plan. It included insurance on money market accounts, a move that started in quiet Thursday morning, when the former Goldman Sachs executive saved the country from a paralyzing meltdown.

Monday, September 22, 2008

The issue of privatisation and the subsequent delisting of a listed subsidiary.

Generally there are two ways companies can be delisted from a stock exchange in.

The first case is the enforced, compulsory delisting of a company, in which the stock exchange forces the delisting of the stock because the listed company has failed to comply with the stock exchange listed requirements. And these are usually based on commercial reasons in which the listed companies simply cannot operate in a profitable manner.

The second manner a company can be delisted from a stock is where the company voluntary informs the exchange that they no longer want to be listed. And a variation of this case, is the delisting of a listed subsidiary is made by its holding company, in which the minority shareholder of the listed company is forced to choose between the offered compensation price or risk being involved in a private company, which would ultimately offers no transparency rights.

I have no problem at all with the first case. These are them bankrupt cases. Them 'koyak' companies. 'Chap-lap' companies which are losing money like crazy.

The second one, the privatisation and the subsequent delisting of the listed subsidiary, this one I really don't like at all.

It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange.

Listed Companies should not be given the approval so easily to privatise their listed subsidiary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once the company is delisted this offers the investor no transparency rights at all. So when a listed company is able to list and delist their subsidiary companies as per their wimps and fancy this would make a total mockery of the stock exchange.

And what about the general offer price for the minority shareholders stake in that listed company? Would the minority shareholders get an offer that is fair or would the minority shareholder be placed in a disadvantage position? Would the premium offered over the existing share price to adequately compensate the minority investors?

If no, this ultimately means that the minority investors would never be given a chance to being adequately compensated for the permanent withdrawal of a good investment opportunity.

And if this is the case, then this would contradict the government's plan to woo more investors into Bursa Malaysia cause investing would have indeed turned very unattractive, a game which is very biased against the investing public.

How could I safely know that I would ever be fully compensated for taking the investment risk in investing in a company listed subsidiary when the holding company can list and delist as per wimps and fancy?

Today we see another privatisation case where Telekom Malaysia wants to delist its listed subsdiary VADS via privatisation exercise.

KUALA LUMPUR (Dow Jones)--Telekom Malaysia Bhd. (4863.KU) is proposing to buy the remaining shares in Vads Bhd. (7150.KU) that it doesn't currently own for MYR7.60 per share in a move to take the company private, Vads said Monday.

In a filing with the stock exchange, Vads said the proposed buyout will involve a selective capital reduction and repayment exercise.

Telekom currently owns 83.4 million shares or 63.3% of Vads.

Vads shares, which were suspended Monday pending the announcement, closed Friday at MYR6.80.

It just does not end.

For sure the minority shareholders are not happy with the less than generous offer by these holding company.

Yup another sad day where the minority shareholders do not get a fair compensation for taking the investment risk in investing in these listed subsidiaries.

What can an investor do next time?

How about being a tiny bit wiser and AVOID investing in these subsidiaries? What's the point of it all when the investor has not chance of getting a fair investing compensation?

And despite the tremendous weakness on a quarter-to-quarter comparison, folks at OSK has discounted it by suggesting that it's mere seasonal weakness. Here's what OSK said in their earnings review of HaiO's earnings.

Hai-O registered another set of strong results with 1Q earnings of RM13.6m, 70% higher than our estimates, while revenue and earnings expanded 90.5% and 94.3% respectively. All divisions recorded positive revenue growth, especially the MLM division, which grew 126.6%. Q-o-q earnings were, however, 28.3% lower due to seasonal factors as 1Q is the weakest quarter for the entire year. We are reducing our earnings forecast and target price despite the strong 1Q earnings in view of the weaker consumer sentiment due to higher fuel price, CPI and bearish market. Nevertheless, Hai-O is still a BUY with target price of RM4.50.

I would like to highlight the following article from Reuters published on CNBC.

The number of Chinese infants sick in hospital after drinking tainted milk formula has leapt to nearly 13,000, and Premier Wen Jiabao told alarmed parents that companies responsible will face harsh punishment.

The Health Ministry said the number of children ill from milk powder contaminated with the industrial chemical melamine had risen from a previously announced total of 6,244 -- which included many who had left hospital -- to 12,892.

Over 80 percent of the sick were aged under two.

The big jump was announced late on Sunday, another escalation in China's spreading milk scandal that has tarnished the "made in China" brand after last year's scandals over everything from the safety of toothpaste and drugs to petfood and toys.

Wen visited hospitals in the national capital in a bid to reassure an anxious public.

"We must make the physical health of the public a priority," he told parents and staff, according to Xinhua news agency.

"The most crucial point is that after a clean-up there can be no problems at all with newly produced milk products. If there are fresh problems, they must be even more sternly punished under the law."

China's food quality watchdog has said it found melamine in nearly 10 percent of milk and drinking yoghurt samples from three major dairy companies: Mengniu Dairy, the Inner Mongolia Yili Industrial Group, and the Bright Group.

But the Health Ministry said no cases of illness have been founded related to liquid milk.

Nitrogen-rich melamine can be added to watered-down milk to get past quality inspections, which check for nitrogen to measure protein levels.

Parents Panic

Panicked parents have crowded China's hospitals and demanded redress since officials and the Sanlu Group, the country's biggest maker of infant milk powder, said two weeks ago that babies developed kidney stones and other complications after drinking the tainted milk.

Sanlu failed to publicly disclose the problem for at least a month, throughout August when Beijing hosted the Olympic Games, officials have said.

The government has promised free treatment for stricken children, but some parents said they worried about long-term complications and costs.

"The recovery period could be long," said Li Lingna, waiting in a Beijing hospital to determine whether her two-year old boy's kidney problems were related to his milk powder.

"We're worried about what this will do to his resistance, with winter and colds coming on. So many problems lie ahead."

In the wake of the scandal, other countries and regions have clamped down on China's milk products. Markets that that have banned or recalled these products include Brunei, Singapore, Malaysia, Japan, Hong Kong and Taiwan.

Even White Rabbit Creamy Candy, a popular Chinese brand of milk sweet, has been contaminated with melamine, Singapore's Agri-Food and Veterinary Authority warned on Sunday.

Over the weekend a three-year-old Hong Kong girl was found to have a kidney stone after drinking a milk product tainted by melamine, making her the territory's first suspected victim of the scandal.

Premier Wen said that dairy products that passed safety tests would be labelled so that consumers can "be at ease."

But the complications from the country's lastest food safety crisis are likely to endure.

The Chinese Ministry of Agriculture said despairing farmers were dumping milk and killing cattle after companies stopped buying their supplies, according to Xinhua. The ministry promised subsidies to help struggling milk farmers.

Just for the record, the following article from Reuters, published on CNBC website, highlights where the bailout money is going. It's really mind boggling to say the least but what else can we expect when these investment bankers are doing 40-1 leverages!

Following are details of actions, proposals and amounts:

—Up to $700 billion to buy assets from struggling institutions. The plan is aimed at sopping up residential and commercial mortgages from financial institutions but gives Treasury broad latitude.

—Up to $50 billion from the Great Depression-era Exchange Stabilization Fund to guarantee principal in money market mutual funds to provide the same confidence that consumers have in federally insured bank deposits.

—The Fed committed to make unspecified discount window loans to financial institutions to finance the purchase of assets from money market funds to aid redemptions.

—At least $10 billion in Treasury direct purchases of mortgage-backed securities in September. In doubling the program on Friday, the Treasury said it may purchase even more in the months ahead.

—Up to $144 billion in additional MBS purchases by Fannie Mae and Freddie Mac.The Treasury announced they would increase purchases up to the newly expanded investment portfolio limits of $850 billion each. On July 30, the Fannie portfolio stood at $758.1 billion with Freddie's at $798.2 billion.

—$85 billion loan for AIG, which would give the Federal government a 79.9 percent stake and avoid a bankruptcy filing for the embattled insurer. AIG management will be dismissed.

—At least $87 billion in repayments to JPMorgan Chase [JPM 47.05 6.75 (+16.75%) ] for providing financing to underpin trades with units of bankrupt investment bank Lehman Brothers. Paulson said over the weekend he was adamant that public funds not be used to rescue the firm.

—$200 billion for Fannie Mae and Freddie Mac. The Treasury will inject up to $100 billion into each institution by purchasing preferred stock to shore up their capital as needed. The deal puts the two housing finance firms under government control.

—$300 billion for the Federal Housing Administration to refinance failing mortgage into new, reduced-principal loans with a federal guarantee, passed as part of a broad housing rescue bill.

—$4 billion in grants to local communities to help them buy and repair homes abandoned due to mortgage foreclosures.

—$29 billion in financing for JPMorgan Chase's government-brokered buyout of Bear Stearns in March. The Fed agreed to take $30 billion in questionable Bear assets as collateral, making JPMorgan liable for the first $1 billion in losses, while agreeing to shoulder any further losses.

—At least $200 billion of currently outstanding loans to banks issued through the Fed's Term Auction Facility, which was recently expanded to allow for longer loans of 84 days alongside the previous 28-day credits.